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Study Finds Relatively Mild Credit Cycle in New York and Northern New Jersey

November 19, 2012

Note To Editors

A recent New York Fed study shows that the New York-Northern New Jersey region experienced a relatively mild credit cycle compared with the nation as a whole, although pockets of financial stress exist.

In their study, economists Jaison Abel and Richard Deitz examine the increase and decline in household debt over the recent credit cycle for areas in the New York-Northern New Jersey region. The authors begin their analysis by examining the rapid increase in U.S. household debt that occurred over the 2000s, and show that the places that accumulated the most debt tended to be areas where the housing boom was strongest. With the onset of the Great Recession and financial crisis, household finances came under increasing pressure, and households began a process of deleveraging.

In the New York-Northern New Jersey region, household debt levels generally did not rise as rapidly as the U.S. average, though in some places, debt burdens reached particularly high levels. In addition, the deleveraging process, while significant, has been less pronounced in the region than in other parts of the country. Nonetheless, the authors also show that financial stress, as measured by the delinquency rate, remains high in New York City, Long Island, and Northern New Jersey, while holding at a lower-than-average level in upstate New York.

These findings help explain why much of the New York–Northern New Jersey region has outperformed the nation during and since the economic downturn. The relatively low level of household debt in upstate New York and New York City suggests that households have had less of a need to improve their finances than those in other parts of the country.

Jaison Abel is a senior economist and Richard Deitz an assistant vice president at the Federal Reserve Bank of New York. Their study, “How Severe Was the Credit Cycle in the New York–Northern New Jersey Region?” can be read in full in the most recent Second District Highlights.